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AVOID
THE PROBLEMS OF ALL-CASH NEGOTIATIONS
EFFECTIVE NEGOTIATION THROUGH STRUCTURED SETTLEMENTS (Cont'd.)
by James J. Yukevich and Alexander Calfo
DECEMBER, 2005
FOR THE DEFENSE
Leveraging
Your Advantages
Actual
case: A 16-year-old girl was shot while eating lunch in her school
cafeteria. There were multiple defendants. Three years later,
she settled with one defendant for about $100,000. At the time,
the girl had a newborn child and a much older boyfriend, who befriended
her after the accident. That settlement was soon exhausted. The
girl, her boyfriend and the girl's mother were pushing the main
defendant, the school district, for a settlement sufficient to
support not only the girl, but also her child. Separately, the
defense attorney found out that the mother had concerns about
the boyfriend's desires on the settlement.
The
solution: The case was resolved within the school district's targeted
range through a structured settlement. Structured settlements
allow a claimant to build protections into the settlement agreement
(and/or into a court order in the case of a minor) against others
gaining access to the payments. Defense and plaintiff consultants
designed a payment stream to support the girl's and child's medical
and living needs. The girl's mother became a quiet advocate for
settling with a structured annuity, which helped resolve the case.
In
this section, we will explain a few ways to use the benefits that
federal law grants to structured settlements to help create a
more attractive financial settlement prior to trial.
As
noted, all-cash negotiations by their nature offer limited flexibility.
The response from the other side will always be the same: "More."
The key is to shift the claimant's focus away from arbitrary dollar
amounts and toward an enumeration of actual upcoming needs. By
enumerating in detail all the claimant's upcoming medical and
living expenses and then showing how a structured annuity payment
stream meets those expenses, you can help create a settlement
that is more "real" to the claimant-and therefore more difficult
to walk away from.
Consider
a few examples in which including a future payment stream as part
of a settlement can add value to the plaintiff at no cost to your
client:
Integrate
with other income and insurance sources.
Payment
streams can be tailored to take account of shifts in other income
sources, thereby maximizing income to the plaintiff. For example,
if a plaintiff is 51, your payment stream can include larger payments
for the first 11 years, with a reduction thereafter because the
claimant will turn 62 and will begin receiving Social Security
payments. If the accident victim is a minor, the parents' health
insurance will likely cover medical costs until the child reaches
maturity. Your settlement payments for medical care can then begin,
with the benefit being that the funding annuity will have compounded
tax-free for several years.
Ease
retirement fears.
America's
corporate pension plans are dangerously overextended, creating
what one business magazine termed "the pension time bomb." A claimant
in his late 40s or 50s is likely to see significant value in a
plan that defers monies to retirement age tax-free and provides
a payment guarantee that pension plans cannot match.
Protection
against creditors and divorce.
If the claimant or his or her family encounters unrelated financial
difficulties, depending on the applicable state exemption statute,
structure payments may offer many claimants significantly greater
protection against creditors than cash and will therefore be more
appealing. Likewise in a case involving (for example) an injured
wife who believes her husband will file for divorce after the
settlement, a structured payment stream offers greater ability
to maintain control over her injury compensation. The same might
be true when the claimant is a minor and one spouse believes the
other cannot be trusted with a lump-sum settlement.
Avoid
probate.
Structure payments automatically bypass probate court if there
are designated beneficiaries. Lump sum settlements, by contrast,
will be subject to the often lengthy probate process. Therefore,
if you have a wrongful death case involving a husband in his mid-50s,
you can provide a life structure with a guaranteed minimum payment
stream and occasional lump sums to ensure that the wife has funds
for the rest of her life. If the mother should pass on before
conclusion of the minimum payment stream, children who are named
as designated beneficiaries will be able to receive the payments
without probate delay.
From
these examples, defense counsel should realize two things. First,
structuring payments often creates a more attractive settlement
offer than straight cash. Second, as with other aspects of litigation,
designing payments is a specialized service. If you decide to
incorporate a structured settlement in your negotiation, you will
likely be working with a structured settlement broker. This person
is typically a financial specialist who reviews claimant's medical
and economic records and then works within your settlement parameters
to design a payment stream for the claimant. (This will not be
an added expense to either you or to your client. Brokers are
paid on commission from the life insurance company that sells
the funding annuity.)
A
word about structured settlement specialists: A trustworthy broker
can be a valuable resource, particularly if negotiations near
the breaking point. An experienced broker can show you ways to
make your payments more valuable to the plaintiff or resolve concerns
the plaintiff may have. In our experience, some defense counsel
use the structure broker solely as an internal advisor, preferring
to keep him or her away from the plaintiff. This seems short-sighted,
since the more the broker understands of the claimant's needs,
the more likely that he or she can design a payment stream to
pique the claimant's interest. Many brokers frequently attend
mediations and settlement conferences and have developed negotiating
skills that may help settle the case.
Finally,
plaintiff attorneys increasingly are retaining their own structure
broker to advise the plaintiff. By involving your own specialist,
you will continue protecting the defendant and insurance carrier
which would fund any annuity plan. Structure brokers can also
be useful intermediaries in helping to continue negotiations that
may seem to have reached a deadlock. This also provides another
way to resolve cases without a trial.
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